Seeking debt rollover

Seeking debt rollover

Foreign debt rollover could mean the difference between
survival and bankruptcy for most Indonesian big businesses which
are reeling amid the currency turmoil, depressed stock market,
credit crunch and punitively high interest rates. But such a
facility has become increasingly scarce because creditors,
concerned over the dire economic condition, understandably are
eager to rush out of what they now see as a highly risky
situation. It is now harder to convince creditors to extend
financing facilities in view of the bleak economic outlook, at
least within the next 18 months.

The initiative taken by the Indonesian Chamber of Commerce and
Industry (Kadin) to send a team of business leaders to Washington
and New York this week, on what is called a roadshow, should be
seen as part of a concerted drive to assure foreign creditors of
the long-term viability of their assets (funds).

Minister of Finance Mar'ie Muhammad, who a few weeks ago
succeeded in convincing Japanese creditors in Tokyo to roll over
their loans to Indonesian companies, lends more weight to the
delegation of business tycoons by acting as the team leader.
Mar'ie's participation in the business roadshow could also help
remove the recent controversy over the government's stance on the
private-sector's foreign debts.

The international market became confused late last month after
the remark by the chamber's chairman, Aburizal Bakrie, that US$5
billion in standby loans from Singapore would be disbursed to
ease the liquidity pinch of medium and big businesses. Only a few
days before Aburizal's statement, made after he met with
President Soeharto in Cape Town, South Africa, Mar'ie had
insisted at a House hearing in Jakarta that the government would
not bail out, directly or indirectly, the private sector's
foreign debts which totaled $65 billion -- of which almost $10
billion will be due by March. The finance minister said the
government would, however, help businesses by lobbying foreign
creditors to rollover their loans to Indonesian debtors.

But businesspeople should not expect too much from the
business roadshow as credit transaction is a case-by-case deal
between a creditor and a debtor concluded after thorough
negotiations and careful credit assessment. Moreover, the
previous success in Tokyo could not be seen as an indication of
another similar achievement in the United States in view of the
special relationships between Indonesia and Japan. The most the
team can do is brief creditors and business leaders in the two
American cities on the general outlook of the economic situation
and the various sectors. The business tycoons are not authorized
nor competent in representing the creditworthiness of individual
business debtors.

Nonetheless, the mission should be prevented from becoming
simply a public relations exercise. Minister Mar'ie and his team
should talk in nuts and bolts regarding the economic condition,
the painful adjustments being taken and to be pursued, the short-
term and long-term impacts of the adjustments.

The briefing sessions and lobbying of the American
participants would be more effective if they include not only
bankers but also securities analysts and researchers of credit
rating agencies. The latter two groups often serve as opinion
leaders for investors and creditors. They should therefore be
assisted with timely, accurate and comprehensive information on
our economic condition. Bankers and investors have now become
much more cautious about Indonesia and other East Asian countries
and are demanding more transparency and high-quality accounting.

But as we mentioned at the outset of this column, the business
mission is only part, and not even the most important one, of the
concerted drive needed to restore foreign confidence in the
prospects of our economy.

Money, stability and confidence will not return until the
government consistently takes painful steps to fix the structural
problems of the economy and improves the transparency and
accountability of its transactions, including those by state-
owned enterprises. Foreign confidence in the business sector will
return only if companies improve the integrity of their financial
reports.

Foreign investors and creditors are willing to help us to
weather the short-term liquidity crisis if we can convince them
that the reform measures we are taking, and will implement, hold
a bright future promise for the economy.